(answered) – 1) (4 marks in total) Below you can find out the per capita realDescriptionSolution downloadThe QuestionPlease help on the attached question.- real GDP- catch up effect-?1) (4 marks in total)Below you can find out the per capita real GDP of the 13 countries who have joined the EuropeanUnion (EU), and the EU average in 1999 (both in Column A). It also gives the GDP per capitalgrowth rates in 2000 (Column B). Let us assume that countries will keep growing at the givenrates until these countries reach the level of the EU average. Answer the following questions andexplain your answers and show all of your working (in order to obtain partial marks).CountryReal GDPper capita in1999(before joiningEU)(A)$25,660Growth rateof GDP percapita in2000(%)(B)2.7Hungary (joined 2004)$5218The Czech Rep. (joined2004)Poland (joined 2004)Slovenia (joined 2004)Estonia (joined 2004)Cyprus (joined 2004)Malta (joined 2004)Romania (joined 2007)Bulgaria (joined 2007)Lithuania (joined 2004)Latvia (joined 2004)Slovakia (joined 2004)Turkey (pending)EU averageRatio of percapital GDP toEU average in1999Years todouble thisratio(C)(D)1-4.8(Q2 a)(Q2 b)$51701.50.2015-$4257$9994$4,259$13,389$13,025$2,323$1,691$3,420$3,092$3,818$6,2305.73.65.52.34.17.34.04.33.65.02.90.16590.38950.1660.52180.50760.09050.06590.13330.12050.14880.242877.825.050.015.253.943.877.830.4350a) (1 mark) Just observing the above table (doing no calculations), are there any countries thatwill not be able to catch up to the level of per capita income in the EU based upon theassumption we have made?b) (2 marks) Fill in the information for Column C and D in the above table for Hungary (whereit is marked as Q2b). And then, using the Rule of 70 from the textbook, how many years willthe ratio of Hungary’s GDP to EU average GDP take to double (hint: the growth rate of afraction is approximately equal to the growth rate of the numerator minus the growth rate ofthe denominator)? How many years do you think it will eventually take real GDP per capitaof Hungary to reach that of EU average?c) (1 mark) The above calculation in part b) is based on the assumption that a country?s realGDP grows at a constant rate. But in reality it does not. Why is that?
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